WHAT IF: Group-based profit-sharing strategies aligned physician incentives with the priorities of hospitals and policy-makers?

Pierre Thomas Léger, Ph.D.
Associate Professor and
Professorship in Health Economics
HEC Montréal
Gainsharing

Concernswith the Current System
Currently in Canada, hospitals and physicians are paid independently from one another.
Hospitals receive revenue from insurers or governments and must pay for all “non-physician services” and costs (ex: non MD labour, drugs, devices…).
Physicians receive their income directly from the insurer or government through fee-for-service, salary…
Although hospitals are responsible for most costs, they have very little control over them -> they are often controlled by physicians.

Concerns: Misalignment of Incentives
Currently, there is a misalignment of incentives where:
The hospital wants the physician to consider costs that are borne by the hospital (for example: drugs and devices (D&Ds)).
The physician has no incentive to consider costs when making treatment decisions.

This is especially true in cardiology and orthopaedics where there are “physician preferred devises” (like stents or prosthetics).
This is important because:
The increases in drug and device costs (at least in the US) account for most the rise in total expenditures in cardiology over the last decade.
These costs are large in both absolute and relative terms.

Another feature of this area is that hospitals buy D&Ds directly from vendors and bargain over prices.
The contracts include quantity and market-share rebates -> the more the hospital buys from a particular vendor, the less is the per-unit price!
Result:
The hospital would like physicians to consider the price of D&Ds when making decisions (e.g. use the less expensive bare metal stent) &
The hospital would like physicians to standardize on the same types of D&Ds for it to benefit from such rebates.

Proposed Option: Gainsharing Programs
Gainsharing programs allow hospitals to provide bonuses to physicians based on savings at the team level.
Under gainsharing, hospitals save (and physicians benefit) when:
Physicians substitute towards the cheaper D&D (substitution).
Physician reduce quantity (although this is prohibited and monitored).
Physician coordinate and standardize on D&Ds type (hospitals benefit from rebates).
Because the individual is paid as a function of his team’s choices, there is an incentive for mutual monitoring.

Experience and Evidence
Experience in the US: the government has allowed gainsharing programs under extremely strict rules targeting cardiologists and orthopedic surgeons.
Physician teams split bonuses based on savings year to year (relative to a historical baseline) on different D&Ds (for example, team members equally share 50% of the total savings in bare-metal stents).
Empirical evidence from Ketcham, Léger and Lucarelli (2011) show that gainsharing lead to substantial reductions in costs in treating PCI-patients & this reduction is due to decreases in the price paid per stent NOT reductions in quantity….

Benefits and Considerations for Canada
Considerations for Canada:
Under strict rules, allow Canadian hospitals to make direct payments to physicians to implement such programs in a meaningful way (generally legally prohibited now).
Add safeguards for potentially perverse effects (for example, monitoring quantities).

Conclusion:
Gainsharing may be a way to decrease the costs of care (i.e., bend the cost curve) in many areas.
How? By aligning the incentives of hospitals and physicians through gainsharing!
Result: important savings come from the reduction in prices paid for D&Ds not reductions in quality or quantity of care

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WHAT IF: Group-based profit-sharing strategies aligned physician incentives with the priorities of hospitals and policy-makers?

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